TICKY FULLERTON, PRESENTER: High frequency trading. It can deliver billions in profits at warp speed but does it manipulate the market?

Well, a new study suggests it reduces rather than increases market manipulation.

While that finding surprised even the report's author, critics of high frequency trading remained unconvinced.

Neal Woolrich reports.

NEAL WOOLRICH, REPORTER: High frequency trading is responsible for plenty of market activity these days, and perhaps just as much heated debate.

ROSS SMYTH-KIRK, CHAIRMAN, KINGSGATE CONSOLIDATED: Why are we putting on a party for these people? Why should we make the stock exchange into a stock casino?

ALEX FRINO, CEO, CAPITAL MARKETS CRC: What we have taking place in the market place is just myth and propagation of myth.

NEAL WOOLRICH: In a bid to dispel some of the myth-making, Professor Alex Frino has just completed a study covering five years of trade on the London and Paris stock markets. The report found that while high frequency trading rose considerably, over the same period market manipulation fell.

ALEX FRINO: So when we came in to it we were indeed looking for a positive correlation, or expected to see a positive correlation between our measures for market manipulation and the amount of HFT, so we were very stunned to find that wasn't the case.

NEAL WOOLRICH: High frequency trading is not just a big business anymore, but a super-charged computer driven exercise in boggling the mind. It's believed to account for two thirds of all turnover on the US market, or around $150 billion a day in trades.

Investors can hold shares for just seconds hoping to make a fraction of a cent on each share before quickly selling out. Company director Ross Smyth-Kirk says that defeats the original purpose of the stock market.

ROSS SMYTH-KIRK: It doesn't matter what your company does, what profit it makes, how good your management is, whatever, it's at the whims of these people and I think it's a minority of people in the market that want to trade in this incredible way.

NEAL WOOLRICH: Australia is yet to experience a so called "flash crash" like the US, but last month shares in a handful of blue chip companies spiked and then quickly retreated in early morning trade. Some have blamed high frequency trading, but Alex Frino argues examples like that are meaningless.

ALEX FRINO: We have a non-transparent market. It is impossible, it is absolutely impossible to tell when a HFT firm is present in the marketplace.

NEAL WOOLRICH: It's estimated that high frequency trading accounts for nearly a third of all activity on the local market. The Australian Securities and Investments Commission is about to release a final set of rules on market integrity which will cover electronic trading. Some, like Ross Smyth-Kirk, argue that high frequency trading should be banned, or at the very least severely curtailed.

ROSS SMYTH-KIRK: There's many, many people like me in the market that are terribly concerned of what it could do and the dangers to the market, and the fact is you're making a false market.

NEAL WOOLRICH: Alex Frino says debate on high frequency trading has become hysterical and hopes his research is the first step in educating the market.

ALEX FRINO: Our study is merely the starting point of a sequence of research that needs to go on to really convince the market place that HFTs are not as bad as the myths make out.

NEAL WOOLRICH: However, no matter what the academic studies say, at the next sign of suspicious activity, high frequency trading is once again likely to be fingered as the main culprit.